The European banking sector is being disrupted by digital transformation, reshaping traditional lending operations, and driving efficiencies for banks and other lenders alike. A significant benefit of this digital revolution for organizations is the substantial reduction in the Total Cost of Ownership (TCO) of their origination, servicing, and debt collection software solutions.

In this article, we will explore how European lenders are seeing significant cost savings by embracing cloud, API solutions, SaaS offers and other digital transformation initiatives, while also enhancing the customer experience and making their organization more efficient.

Transforming infrastructure & operations with cloud, API solutions and SaaS offers

On-premise infrastructure is holding many organizations back, preventing significant transformation and upgrades due to upgrade costs. Cloud computing is a game-changer for European banks as it offers a cost-effective alternative to traditional infrastructures.

With cloud services, banks and other lenders can shift parts of their operations outside their premises, reducing the costs associated to having an in-house IT infrastructure and the maintenance costs that come with it.

There are of course elements of outsourcing arrangements that need consideration, such as adherence to the Digital Operational Resilience Act (DORA), an EU regulation that entered into force in January 2023, and will apply as of January 2025.  

According to a February 2024 European Central Bank newsletter, cloud services account for around 15% of all outsourcing contracts. This paired with the fact that cloud services supporting various functions such as data storage, processing, and analytics being on the rise in the European Union illustrates how the market is responding to digitalization. 

By implementing a cloud-based infrastructure, organizations can scale resources dynamically and adapt to fluctuating customer and market demand, which in turn optimizes cost-efficiency. Outsourcing infrastructure management to a cloud service provider enables banks and other lenders to eliminate costly hardware investments and ongoing maintenance costs associated to this. 

However, this still requires the management of infrastructure, even if it is cloud based. Organizations can push for further cost savings and even avoid unnecessary cloud operation costs by utilizing standard SaaS solutions and standard APIs to integrate them.

By building a complete software solution by combining and plugging multiple standard SaaS offers together via APIs, lenders can reduce manual intervention with automation solutions and take advantage of the scaling capabilities of the SaaS solutions.  

Image: Outsourcing infrastructure management to a cloud service provider enables FIs to eliminate costly hardware investments, and ongoing maintenance costs. © Getty Images
Outsourcing infrastructure management to a cloud service provider enables FIs to eliminate costly hardware investments, and ongoing maintenance costs. © Getty Images

In addition, APIs further enhance operational efficiencies and cost savings by enabling seamless connectivity between systems and applications, facilitating secure data exchange and enabling process automation with the support of pre-trained machine learning models.  

By leveraging such technology, organizations can streamline their operations internally and externally, automate significantly more tasks and improve interoperability with external partners and regulatory agencies. Such integrations reduce the need for manual intervention, reduce instances of error and accelerates decision-making by implementing pre-set business rules.

All these enhancements to infrastructure contribute to the organization’s overall cost reduction of day-to-day business operations.  By transforming software overall to a SaaS Solution, businesses can implement a pay-per-use cloud-native offer and avoid purchasing unnecessary infrastructure and maximize resource. This enables lenders to only be “on” when change is occurring to a loan agreement, and not simply paying too much to only store it.    

In addition to cost savings incurred because of process enhancements, there is also a significant cost savings when there is no longer a need for on-premises servers. This can be explained by significantly reducing their energy consumption and environmental impact, as well as their need to maintain certain business premises to house servers.

AWS statistics show that customers were able to reduce their cost of networking by eliminating or reducing on-premises networking equipment and connectivity by 66%. In addition to this, customers also experienced 69% cost reduction through AWS storage compared to traditional on-premises storage.

Additionally, the multi-tenant SaaS offer empowers lenders to benefit from the AWS cost shared across the SaaS providers customer base all using the same solution and benefit from mutual resources.  

Optimizing workforce and enhancing customer engagement

Outside of cost savings associated to infrastructure optimization, digitization also impacts the human element of banking operations. By reducing the dependence of an on-premises infrastructure, fewer staff are required to maintain and develop the solution, along with regular security enhancements and other maintenance.

Instead of having staff reactively responding to servers, investment can be made to proactively support vulnerable customers and specific business cases. The bank employees can focus on serving their customers with high-value and quality business services instead of focusing on technical aspects of their IT.  

Having an event-based, serverless approach enables organizations to only use resource when they need it. A great example of this is direct debits within the loan portfolio. Using traditional server methods would mean that the solution is running permanently, incurring usage costs and contributing to overall energy usage, even when a loan contract is just sitting and waiting and not active.

By moving to a cloud-native true SaaS model that leverages scalability to the maximum, businesses can significantly reduce the usage of resources and their total cost of ownership. Businesses are on a pure pay-per-use basis that only generate costs when it is completing an action, such as collecting a direct debit or making a change to a loan. 

While APIs, machine learning, and cloud technology won’t replace the workforce entirely, organizations can instead position staff to enhance the customer service delivery and ensure a better overall end customer experience.

By reducing investment in on-premises solutions, banks and other lenders can turn their focus to proactively shaping the market with new products and services that will help grow and retain their customer base.  

By digitizing routine tasks such as loan origination, loan servicing, debt collection, and data analysis, banks and lenders reduce the need for manual intervention and their administrative overhead.

In addition to the money saved due to automatic processing, they also benefit from earlier risk identification and a reduction of instances of human error. Workflows and self-service capabilities not only empower customers to manage their accounts independently, but also frees up staff to focus on higher-value activities.  

With the support of digital tools and analytics, lenders can gain a deeper insight into their client’s needs based on their behavior and preferences, empowering them to offer tailored products and services that will ultimately drive customer engagement and loyalty. Likewise, these tools also enhance the client journey by empowering the customer to manage their loans at a time that suits them.

Image: With digital tools & analytics, lenders can gain a deeper insight into their client’s needs, empowering them to offer tailored products & services that will drive customer engagement and loyalty. © Getty Images
With digital tools & analytics, lenders can gain a deeper insight into their client’s needs, empowering them to offer tailored products & services that will drive customer engagement and loyalty. © Getty Images

More and more clients are using their online or banking app to review account information, change direct debit dates, and even postpone payments, without ever having to contact their lender.  

By implementing a digital transformation initiative, banks, and lenders can reallocate their human resource more strategically, directing staff to areas where they can deliver the greatest impact instead of processing manual, repetitive tasks.

In a world of people with complex financial situations, digitization has the power not only to streamline and simplify operations, but also to create meaningful human interaction when customers need it most. 

How SBS can help 

As banks across Europe continue to respond to changes in regulatory landscapes and adapt to evolving customer needs, the need to offer competitive products and services and retain clients remains key.  

When it comes to supporting banks and other lenders with their move to cloud, implementing automation, and increasing client engagement, SBS is leading the push towards the next generation SaaS offering.

Our best-in-class solution supports over 100 million loans and leases for over 250 clients in 50 countries worldwide. It’s enabling our customers to leverage data, lower their total cost of ownership (TCO), and bring added business value with plug and play third-party standard API solutions.

Our solutions have supported lenders to achieve growth with increased capabilities, increase their volumes and reduce costs. 65% of T1 banks in France with “Loan Servicing” and/or “Collection Management” Operations, and 90% of T1 banks in Morocco.  

To learn more about how our lending platform solution help organizations gain efficiency and control in their credits and risks operations, please click here.  

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Jean-Yves Duchosal

Chief Product Officer

Sopra Banking Software

Jean-Jacques Pineau

General Manager, Digital Lending Business Unit

Sopra Banking Software